After declining somewhat in the third quarter, U.S. real estate securities rose strongly during the fourth quarter, capping the strongest calendar year return for the Wilshire Real Estate Index since 2006. The environment was favorable for interest rate-sensitive stocks, as long-term rates and inflation expectations tumbled with oil prices. The portfolio performed well with a double-digit gain. Real estate investment trusts (REITs) were one of the stronger areas of the equity market, due primarily to a surprising drop in long-term interest rates, strong real estate fundamentals, and improvements in the overall economy.

The Real Estate Fund returned 14.23% in the quarter compared with 15.03% for the Wilshire US Real Estate Securities Index and 13.86% for the Lipper Real Estate Funds Index. For the 12 months ended December 31, 2014, the fund returned 29.75% versus 31.53% for the Wilshire US Real Estate Securities Index and 25.67% for the Lipper Real Estate Funds Index. The fund's average annual total returns were 29.75%, 16.93%, and 8.35% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.79% as of its fiscal year ended December 31, 2013.

For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.

The Real Estate Fund charges a 1%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.

Performance was decidedly positive across all property types. The health care segment, which tends to be one of the more interest rate-sensitive spaces within real estate, responded favorably to the decline in interest rates and was the strongest subsector in the Wilshire index. An underweight in the area, however, proved to be negative. Apartment REITs were also relatively strong, extending their run of good results as property fundamentals remained robust. The lodging segment was buoyant, as strength in revenue per available room and an improving business travel environment bolstered lodging companies. Unfortunately, some of our lodging holdings failed to keep pace with the group overall.

The conditions remain in place for an attractive environment for real estate investment, despite various uncertainties. Improving economic activity drives the demand for our properties, and we anticipate ongoing strength in property fundamentals as new construction supply appears restrained. Despite the Federal Reserve ending asset purchases in October and indicating that short-term rates may edge up in 2015, interest rates have yet to begin an upward trajectory as many expected would happen in 2014. We feel that even if a rise in rates occurred, it would not necessarily be bad for REITs, assuming a growing economy. Better fundamentals should lead to higher rents, cash flow, and dividend distributions, which should help temper rate concerns. We maintain a favorable long-term view of real estate fundamentals, based on improving demand, reasonably constrained supply, and continued access to capital markets.

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